NEW YORK: Oil steadied on Thursday after hitting its highest price in two and a half weeks as the impact of tighter U.S. crude stocks due to a winter storm in the United States was offset by fears the Federal Reserve would dent demand with more interest rate hikes.

Brent crude futures were down 8 cents to $82.12 by 11:23 a.m. (1623 GMT), after gaining around 2.7% from the previous session. U.S. West Texas Intermediate (WTI) crude futures were up 3 cents at $78.32 a barrel.

Both benchmark contracts jumped on Wednesday after government data showed U.S. crude inventories fell by much more than analysts had expected, posting a drop of 5.89 million barrels for the week ending Dec. 16.

Distillate stocks, which include heating oil and jet fuel, also declined, going against expectations for a build, in what PVM analyst Stephen Brennock called “an overwhelmingly price-supportive stock report from the EIA.”

Stockpiles fell as demand for heating oil was set to soar because of a powerful winter storm hitting the United States, with sub-zero wind chills expected as far south as Texas and record-breaking lows forecast for Florida.

At the same time, airlines cancelled nearly 2,000 U.S. flights scheduled for Thursday and Friday, disrupting holiday travel for thousands and sending a bearish signal for travel fuel demand.

Oil prices rise but China’s COVID surge limits gains

Oil gave up its daily gains after the release of U.S. economic data showed the number of people filing new claims for unemployment benefits increased less than expected last week and the economy rebounded faster than previously estimated in the third quarter. The rosy data increased concerns the Fed would become more likely to intensify its rate hikes in a move that could slow the economy and hamper fuel consumption.

“That started to ruin the momentum because of fears the Fed would be back chopping down the market again,” said Phil Flynn, an analyst at Price Futures Group in Chicago.

Also keeping a lid on prices are demand worries stemming from China’s COVID-19 surge and fears of a global recession.

China may be struggling to keep an accurate count of COVID-19 infections as it experiences a big spike in cases, a senior World Health Organization official said on Wednesday, amid concerns about a lack of data from the country.

A Shanghai hospital has told its staff to prepare for a “tragic battle” with COVID-19 as it expects half of the city’s 25 million people will get infected by the end of next week, as the virus sweeps through China largely unchecked.